Covista Inc. (CVSA) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the DeVry Fiscal '13 Third Quarter Conference Call. My name is Sue, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Joan Bates, Senior Director of Investor Relations. Please proceed.

Thank you, Sue, and good afternoon, everyone. With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer; Tim Wiggins, our Chief Financial Officer; and Pat Unzicker, our Vice President of Finance. I'll now paraphrase our Safe Harbor statement. This call will contain forward-looking statements. Actual results could differ materially from those expressed or implied. We undertake no obligation to publicly update or revise any such forward-looking statements. Please consult with our most recent 10-K and 10-Q filings for a more complete description of factors that could affect our financial results. Telephone and webcast replays of today's call are available until May 20. To access the replays, please refer to today's release for more information. And with that, I'll turn the call over to Daniel.

Thank you, Joan. Thank you, all, very much for joining us today. Total revenues for the third quarter were down year-over-year. In all institutions other than DeVry University and Advanced Academics, revenues were up. We're managing aggressively in this environment, and I would say that, as a result, total operating expenses were lower versus the prior year. But at the same time, our academic outcomes remained strong, including solid employment outcomes at DeVry University, impressive board scores at our health care institutions and strong pass rates among our Becker students. We're continuing to execute on our performance improvement plan. And as a reminder, the plan has 3 priorities: aligning our cost structure, regaining enrollment growth and making targeted investments to drive future growth. And so first, with respect aligning our cost structure, last quarter, we increased our fiscal 2013 goal for efficiency, savings and value creation to at least $80 million. And we now, in this quarter, believe we can achieve $100 million. And so as a result, we expect our total expenses to be down for fiscal 2013 from the prior year. At DeVry University in Carrington, we've made a great deal of progress matching our staffing needs with our enrollment levels while maintaining the high level of quality, teaching and service that our students expect. We also continue to generate savings through real estate optimization and this further consolidation of locations across our family of institutions. I'm going to ask Tim to go into more detail on this a little later. Let me simply say that while to date, our real estate optimization efforts have accounted for a relatively small portion of the efficiencies that we've achieved, I'm really proud of the team's thinking and their approach to this area, and we expect more opportunities heading into fiscal '14. Now for our second priority, regaining enrollment growth. I'm going to focus mostly here on DeVry University, where our enrollment results clearly weren't where we'd like them to be. The sequential improvement that we saw in January enrollment didn't carry through to the March session. We need to improve our execution while we're continuing to be impacted by a challenging environment. And just for context, we believe that the biggest reason for soft enrollments at DeVry University is lower cyclical demand among our target segment of students driven by the economy, the job market and perceptions of the value of a college degree. Continued weakness in the economy and over 4 years of elevated unemployment is having a profound affect across higher education. Even enrollments in the heavily tax-subsidized and low-tuition community colleges were down over 3% nationwide in 2012. Enrollment in California's Community College System, which is the largest in the United States, is now at a 20-year low. That's according to a March report from the Public Policy Institute of California. And on the other end of the spectrum, graduate programs continue the struggle as well. Right here in Chicago, Northwestern and Loyola University's Law Schools recently announced that they are each reducing their incoming class by 10%. Many prospective students are hesitant to commit to pursuing a degree, as they're questioning the value of a diploma. Basically, they're saying to us, "Why should I go to college when the jobs just aren't there?" Some color on this is a lengthening of the decision-making process. At DeVry University, historically, for a prospective student to go from the initial inquiry stage to the application, it's been around 20 days. We've now seen this number more than double to 50 days. This student hesitation is probably reinforced by media stories saying college isn't worth it anymore. Yesterday, the USA Today ran a story entitled "Kids Skip College, Not Worth The Money". Well, as you know, the fact is that the value of a college degree remains very strong, whether you're looking at salary differential, unemployment differential for college grads. And left out of most of these media stories is the fact that job opportunities remain high in many of the fields DeVry University specializes in, including software development, management analysis, accounting and also emerging fields like cyber security. So we believe as the economy improves, we'll likely see different media stories saying, "Can't Find Programmers, Can't Find Accountants". We believe an improving job market will be a positive tailwind and the long-term value of a degree remains strong despite this current cyclical challenges that we're facing. So with that context, let's focus on the steps that we're taking to address these challenges and regain employment growth -- enrollment growth at DeVry University. Our strategy is centered on the fact that DeVry University offers a very strong return on investment, and we need to do more to demonstrate this inherent value proposition to prospective students. So first, we're changing our messaging to be more hard hitting on DeVry University as the career university. 86% of graduates active in the job market are employed in their field of study within 6 months of graduation, and that's with an average salary over $43,000, and the percent is trending up as we're going through this fiscal year. So we're going to do a better job of communicating these impressive results to prospective students. Second, we're improving how we help students understand the various ways we can assist them to finance their education, and we're going to do that earlier in the admissions process. One way we're doing that is by introducing tools like a new net price calculator. This allows this prospective student to enter information specific to them and to see what grants and scholarships they might qualify for to lower their educational cost. Now we're also improving the affordability of our programs. For example, we're in the process of developing a shorter version of the MBA program offered through DeVry University's Keller Graduate School of Management. This new executive MBA program will require 32 credits and would run in parallel to the standard 48-credit program. This shorter program is targeted toward an MBA student with more managerial and work experience coming in. We're also addressing affordability through scholarships and pricing. DeVry University will continue to offer scholarships as well as doing more to help students access outside sources of financial aid, and we're going to freeze tuition for next year. We have a long track record of holding our rate of tuition increase below the rate of public sector and independent colleges in the U.S. We think our actions to improve affordability look even stronger in students' eyes when you note that at public universities, average tuition jumped 8.3% in 2012. That's from a report by the State Higher Education Executive Officers Association. It's the largest increase on record, and that's after grants and scholarships. So that's net tuition that increased 8.3% among the public sector and independents. And one last point on regaining enrollment growth at DeVry University is investing in partnerships with corporate and government organizations. We have over 200 such partnerships. 150 are with Fortune 500 companies. Now just one example of these is Wal-Mart, with whom we've worked for several years. DeVry University and its Keller Graduate School of Management are currently educating over 900 Wal-Mart associates. And as a result of this customized partnership -- we're getting some noise on the line here. [Technical Difficulty] Let me -- just in case there was that noise, I'm just going to back up a second here. So I was talking about Wal-Mart, with whom we've worked for several years at DeVry University in the Keller Graduate School of management. And at the present time, we're educating over 900 Wal-Mart associates. It's a customized partnership where Wal-Mart associates have access to DeVry University locations coast-to-coast and online courses as well and a dedicated service team. They also receive special tuition savings. Companies like Wal-Mart set very high standards. And so when they partner with DeVry University, it reflects very well on the quality of our academic programs and support services. Our corporate partners tell us that they also value the DeVry group's ability to provide a wide range of programs across our diverse institutions, so across Chamberlain and Carrington and so forth. And so that's how we're thinking about the challenges impacting DeVry University enrollment and our plan to regain enrollment growth. And I'd like to go on and discuss a little bit more about regaining enrollment growth across Carrington and Chamberlain as well. In Carrington, I'm pleased to say that our turnaround plan is working. New student enrollment was up 17.5% in the quarter, and that's now the third straight quarter of double-digit enrollment growth. Improvements to our processes and to our recruiting efforts continue to drive higher-quality inquiries and higher conversion rates as a result. The implementation of a new branding campaign in December continues to gain momentum, and through an A-B split test methodology, we're refining our messaging to prospective students across media, including local television, social media and others. These efforts are increasing awareness of Carrington's value proposition, namely the individual attention and the career focus that we provide Carrington students. Now with this progress that we've made in turning around new student enrollment, we're now moving into the next phase of the plan, which is getting Carrington back in the black. We'll narrow our focus geographically and programmatically around Carrington's core strength in health care careers. This means that we'll reduce the emphasis on non-health care programs in some local markets where demand has been the weakest, at least for the near term. We're also making quality enhancements to Carrington's programs, which includes a mix-and-match approach. And this enables students to have the best balance of on-site and online coursework that works the best for them. Now at Chamberlain College of Nursing, total student enrollments were up nearly 17%. In case there's any confusion with the academic calendar shift that we're implementing at Chamberlain, we've included a chart for you in the release. I'm going to ask Tim to provide some detail a little bit later. Enrollment in Chamberlain's online RN-to-BSN program continued to show strength in the quarter, and that was driven by higher-quality inquiries and an improved conversion rate. We've just completed a market study on the long-term outlook for demand in this online RN-to-BSN program, and our findings are showing that demand should remain strong, and it's driven by an increased need for skilled nurses at the baccalaureate level. You may recall that at this time last year, we were discussing the softness that we were experiencing in this program, and we've now turned around new student enrollments at Chamberlain online RN-to-BSN just as we did at Carrington, and we intend to do so at DeVry University as well. And now just turning to the third priority, we're making targeted investments to drive growth across new programs, new campuses and acquisitions. At the American University of the Caribbean and Ross University Schools of Medicine and Veterinary Medicine, we're currently developing dual MD/MBA, and DVM/MBA degrees -- too many letters. So an MD/MBA and a DVM/MBA. 2 programs. And that's in partnership with the Keller Graduate School of management, of course. These are some of the first dual-degree programs of their kind among the DeVry institutions, and it's a great example of how we're increasingly leveraging our diversified family of institutions to create new programs. At Becker, our exam review course for the U.S. Medical Licensing Exam has been doing well and is now being taught in 2 new locations, 1 in New York and 1 in Chicago. So that's new programs. In terms of new campuses, we're selectively investing here. During the quarter, Chamberlain opened a new campus in Cleveland. And in May, Chamberlain's new Tinley Park, Illinois location will sit its first class. And that's our third location in the Chicago land area. Much like our Atlanta opening, the Tinley Park location is receiving a very strong response from students who want to enroll in nursing. We're also continuing to invest in DeVry Medical International with construction of new facilities in AUC, on pace to open in September, and we're investing in our human capital as well, bringing in Dr. Heidi Chumley to serve as AUC's new Dean and Chief Academic Officer. We recruited Dr. Chumley from the University of Kansas School of Medicine. Over there, she was the Associate Vice Chancellor for Educational Resources and Interprofessional Education. Dr. Chumley's accomplished career as a physician, as an educator and as a leader is going to serve AUC very well. DeVry Brasil is also an opportunity to make investments to drive growth through both organic growth and acquisitions. Across DeVry Brasil, we're focused on investing in new program offerings in high-demand health care fields and also in improving the quality of our existing programs with new facilities and new equipment. And so that's an update on our progress across our performance improvement plan with 3 urgent priorities: aligning our cost structure, regaining enrollment growth and then making targeted investments to drive future growth. And we're intently focused on addressing our challenges at DeVry University. And so with that overview, let's turn it over to Tim for a discussion of the financial results.

Thanks, Daniel. Good afternoon, everyone. Before I walk through enrollment and financial results in detail, let me start by commenting on our cost reduction efforts. We've been hard at work focusing on increasing efficiencies and creating value throughout the entire organization. For our institutions in transition, we started 2013 with a target of $50 million in savings and value creation opportunities. I'm pleased to say, we've now increased our target to $100 million to be delivered by the end of the fiscal year. We think our -- we think about our cost saving strategy around 3 overlapping layers. The first phase is made of near-term items, focusing on our staffing models and variable cost elements. That's what's been driving a lot of the initial savings as we adjust our cost model to enrollment volumes. The middle phase comprises items that take a little longer to walk through. Things like our real estate footprint, where we've been able to consolidate 7 facilities to date. For example, last quarter, we delivered approximately $3 million in annual expected savings from consolidating an administrative office facility in Wood Dale, Illinois, as well as facilities at Carrington College and DeVry University. In the third quarter, we consolidated Carrington's Emeryville, California campus. The third phase, which is in its early stage, focuses on process redesign and restructuring. These are longer-term initiatives, which not only reduce cost but also improve service quality and shift cost to a more variable model. This includes areas like student finance, which is currently spread out across individual institutions and campuses. So those are things that will take a little bit longer and probably require some investment. Taken together, we think the combination of these 3 layers puts us in a position to reduce our cost structure, make it a more variable cost model and allow us to experience more positive operating leverage when enrollment growth returns. Looking to the fourth quarter, we expect total cost and expenses to be down year-over-year but up sequentially, driven by higher revenue and new locations at our growth institutions. As we exit the year, we expect our expense savings run rate within our institutions and transition to be in the $125 million range. Stepping back and looking at the full fiscal year, we're now expecting total costs to decrease in the range of 1% to 2%. We're pleased that we've been able to continue to fund investments in our growing health care and the international institutions and to reduce costs in our institutions in transition. Turning to enrollments. As Daniel mentioned, DeVry University experienced a challenging quarter, with new student enrollment down 21.2% from last year and total enrollment down 16.5%. At Carrington, new and total student enrollment grew this quarter. Going into the fourth quarter and next year at Carrington, we don't expect to continue going to continue achieving large enrollment gains that you've seen in the past few quarters. We still expect positive growth, just at more modest levels as we narrow our focus and cycle through tougher comparisons. Chamberlain continues to experience new and total student enrollment growth, as the need for skilled nurses in the U.S. remains high. Total enrollment was up nearly 17%, and new student enrollment was up nearly 16%. The third quarter was the final quarter of Chamberlain's campus-based realignment to mirror a traditional academic calendar with September, January and May intakes. Due to the shift, there were no campus-based enrollments in March. Therefore, the new student comparison for March is for online students only. Growth also continues for DeVry Brasil, driven by Fanor and FAVIP. New student enrollments were up 2% versus prior year, and total students were up more than 7%. Moving on to the financial results. Third quarter total revenues were $509 million, down 5.9% versus prior year. Year-to-date revenues were $1.5 billion, down 6%. In the third quarter, revenues for our institutions in transition -- that's DeVry University, Carrington and Advanced Academics -- were $327 million, down 14.5% versus the prior year. This was partially offset by our growing institutions, where revenues increased 15.5% to $183 million. Acquisitions of Falcon, FBV and FAVIP contributed positively to these results. Excluding a $2 million pretax restructuring charge related to the consolidation of Carrington's Emeryville campus and severance costs related to our decision to close DeVry University's Calgary campus, total operating costs and expenses for the quarter of $433.1 million declined 2.7% compared to last year. For the 9-month period, total cost and expenses were about $1.3 billion, down 1.5% compared to last year. During the third quarter, total costs excluding discrete items at our institutions in transition were down 9.7% or nearly $29 million versus the year ago period. This was driven by our expense management and from lower cost that varied directly with enrollment levels, including adjunct faculty and bad debt. Based on the current enrollment trends, we expect expenses for the fourth quarter to decline modestly on a sequential basis at our institutions in transition. Total cost excluding discrete items at our growing institutions increased 13.5%, which is less than revenue growth and consistent with our plans for continued growth at DeVry Medical International, Chamberlain and DeVry Brasil. Cost of educational services decreased about 1.3% during the quarter. Costs were down at our institutions in transition by 9.5% year-over-year. This was partially offset by a 20.1% increase in costs at our growing institutions. Student services and administrative expense decreased 4.5% as compared with the prior year. Costs at our institutions in transition were down 10.3%, largely reflecting our cost-reduction initiatives to match enrollment levels. Costs at our other institutions increased 3.3%, which was more than offset by our cost reductions. Reported net income was $57 million for the quarter and $139 million year-to-date. Diluting -- diluted earnings per share, excluding discrete items, was $0.90 this quarter and $2.26 year-to-date. Our effective tax rate was 22% for the quarter. This tax rate reflects the benefit from the recent reinstatement of expiring tax provisions of the tax law. We expect that our effective income tax rate for operations for fiscal year 2013 will be around 24% in the fourth quarter. With that overview, let's now shift to our operating segment results, which are further detailed in our release. Starting with the Business Technology and Management segment, revenue was down 16.3% during the quarter versus prior year and 15.3% year-to-date. DeVry University undergraduate revenue per student was down 3.6% in the third quarter compared with the prior year. This was driven by an increasing percentage of students from our corporate and military channels and lower course loads. Excluding discrete items, total segment expenses for the third quarter decreased 9.5% as compared to the year ago period and 8.5% for the 9-month period. Segment earnings minus discrete items were $35.4 million in the quarter, down 45.2% versus last year, driven by the revenue decline and resulting margin compression. For the 9 months, segment earnings were down 45.6%. Within the Medical and Healthcare segment, revenue was up 9.1% during the third quarter and 8.6% year-to-date. And excluding discrete items earnings for the Medical and Healthcare segment for the quarter of $35.7 million increased 37.4% from the prior year. Finally, revenue within the International, K-12 and Professional Education increased 23.3% in the quarter and 23% year-to-date. This was driven by growth at DeVry Brasil, the acquisition of Falcon Physician Reviews in April 2012 and from sales of Becker CPA review materials. At DeVry Brasil, revenues increased 60.5% this quarter, driven by the acquisitions of FBV and FAVIP as well as organic growth. We continue to explore growth opportunities in Brazil, both through organic expansion into new programs and locations as well as through acquisitions. The segment's earnings increased 19% during the quarter versus the prior year, driven by increased operating leverage within DeVry Brasil and Becker. I'll now turn the call over to Pat the talk more about our balance sheet and financial position. Pat?

Thank you, Tim, and good afternoon, everyone. Liquidity and financial position continue to remain solid. Cash flow from operations for the first 9 months was $281 million versus $355 million last year, reflecting our lower earnings. The cash and marketable security balance was to $278 million at the end of the quarter compared to $332 million last year. Our cash and marketable securities balance is lower than last year, reflecting our investments for acquisitions. Our net accounts receivable balance was about $194 million versus $255 million last year. The lower AR balance was the result of decreased revenues and our continued focus on collections management. Our bad debt rates continue to reflect the focus on the receivable collection process, with year-to-date bad debt expense down to 2.2% of revenue as compared to 2.3% last year, a strong indicator of the value proposition of our programs and our team's disciplined execution in this area, even during these tough economic times. A concern we've heard about a lot lately is exposure that some private sector colleges and universities have to recourse on private loan programs. Across DeVry's institutions, private loans are a very small percentage of our students' total financing, about 2%. And we don't have any significant exposure to recourse private loans. Capital spending for the first 9 months was $79 million versus $92 million spent last year. Our capital spending was down because we delayed a couple of projects and by the continued focus on prudent capital deployment. We expect total capital spending for the fiscal year to be in the $125 million to $135 million range as we reinvest our earnings in academic quality and targeted growth initiatives. During third quarter, we repurchased over 347,000 shares of our common stock for about $9.8 million or an average of $28.18 per share. Overall, our strong financial position and cash flow generation gives us the flexibility to reinvest in quality and growth. Now let me turn the call back over to Daniel.

Thank you, Pat. Okay. Before we get to your questions, I'd like to highlight how quality plus diversification differentiates DeVry and positions us for long-term growth. One measure of quality is the investments that we make in academics, in student services, in educational technology and so forth. Over the last fiscal year, DeVry spent over $900 million in academics and infrastructure to serve our students. This includes investments in state-of-the-art patient simulators at Chamberlain and Ross and AUC and many other investments. About $25 million has been invested in areas like curriculum and faculty development. At DeVry University, roughly 40% of our professors now hold doctoral degrees. As an illustration of how investing in quality differentiates DeVry, consider the accreditation process that each of our institutions goes through. And we know this had been a concern for -- that some of you have had, having seen some issues in this area. And last quarter I, mentioned how Chamberlain received Higher Learning Commission -- that's the HLC, HLC approval of its first doctoral program, the DNP. Recently, Ross University School of Medicine successfully earned its reaccreditation from the Dominica Medical Board for a 5-year term. In this quarter, DeVry University completed a full review from the HLC and achieved reaccreditation through 2019. This is a tremendous accomplishment on the part of our team, and the feedback we received from the HLC reviewers couldn't have made us more proud. I'd like to share a comment from their report: "The University invests in the services, programs and infrastructure needed to provide an outstanding educational experience to its students in order to enhance their academic and career success." These successful accreditations really do illustrate how investing in quality differentiates DeVry. The other measure of quality is student outcomes. Earlier, I mentioned the graduate employment rate for DeVry University. Recently, I was visiting our Phoenix campus, and I learned that in the past year, IBM hired more graduates from DeVry University, Phoenix than from Arizona State or from the University of Arizona. At Becker, we just learned that 37 of 39 of the 2012 Elijah Watts Sells Award winners prepared with the Becker CPA review course. So DeVry is distinguished by the quality of our institution. And we've also diversified to mitigate risk and to give us more opportunities for future growth. We've included a chart, labeled Chart 3 in the press release, just to give you a picture of the success of DeVry's diversification strategy. And it shows how over the past decade, we've diversified our curriculum more into high-demand fields like health care, which now accounts for about 1/3 of our current revenue; we've also diversified across degree levels, with more coverage across doctoral, masters, bachelors and pre-baccalaureate associate and certificate-level programs; and geographically, we're diversified as well, with nearly 1/5 of our revenues come from outside the United States, including, of course, DeVry Brasil, which now serves 29,000 students across 5 cities. DeVry's formula of quality plus diversification is helping us as we work through the cyclical weakness in the United States, and we remain confident that DeVry is well positioned to capture opportunities for long-term growth and career-oriented education. So to wrap up, we've made progress in some areas, and we know we have more work to do in others. We're focused on addressing enrollments at DeVry University and sustaining momentum on a performance improvement plan with the goal of returning to overall growth and operating leverage. So with that, we'd be happy to take your questions.

Okay, great. Sue, if you could give our participants the instructions for the Q&A portion of the call, we'd appreciate it.

[Operator Instructions] Your first question comes from Sara Gubins, Bank of America.

This is David Chu for Sara Gubins. So did starts get so much worse in the back half of the quarter? Because I know you guys announced, essentially, in mid-February, and it sounds like it was much worse than expected.

No. I would say it was not a sudden shift during the quarter. Just the kind of choppiness that we talked about at that time.

Okay. And so I know you guys, like historically, or at least in recent quarters, cited kind of lead flow as the reason as conversion rates were strong. I mean, is that -- did that continue? Or were conversion rates weak in the quarter?

No, unfortunately and disappointingly, it was really both. Inquiries were down and the conversion was down, as we saw degradation, obviously, in the mix. And so I'm sorry to report and disappointed to report that it was really both this time.

Okay. And just one follow-up. Can you quantify what portion of the $100 million is actual like cost savings versus lower variable cost that's associated with a lower base?

If you think about it this way, probably about 80% -- 80% to 85% are structural, lower cost that we've taken out of the system versus the volumetric component ranging between 15% to 20%.

And your next question comes from Suzy Stein, Morgan Stanley.

In the beginning of the call, you talked about how big the opportunity is in terms of real estate optimization. Can you just give us some idea of the magnitude of this and how much potential cost savings you think you could achieve maybe in fiscal '14 from this?

Well, I think a lot has to do with how the enrollments play out at DeVry University. And obviously, we're disappointed with what we saw here in this class sitting. So what we're looking at is the overall portfolio of real estate. And I think we're still too early to figure that out. It's really a function of where the enrollments play out and should we make some additional structural changes to how we approach those markets. Suffice it to say, as Daniel mentioned, that we're going to continue to find places like the Emeryville campus, where we were able to move those students to a campus that was within a 15- or 20-minute drive. So part of it is in optimization, but we're also, early, looking at should we change some of the structure of these campuses to have -- continue to provide the mix-and-match and the campus experience, but with maybe a different cost approach.

And I hate to ask this question, but could you comment on the recent Attorney General actions in Illinois and Massachusetts?

Sure. I think we're in a world where you have to show -- not only be compliant, which we are, but you have to show that you're compliant, and that's what these 2 Attorneys General have asked. We now that in the -- we now know, or we understand, that many others received that request for information in Massachusetts. And to broaden context, we have very little presence in Massachusetts. We have no campuses there. We do have some students from Massachusetts who would be going online with us, but no state aid dollars from Massachusetts into our students. So that's just a little context there. And in all cases, we absolutely intend and are cooperating fully with the inquiries, as we've done before. It's I think a cooperative sort of stance. And I would note, we've had a comprehensive compliance program in place since 1982, and we're totally committed to quality and integrity in all we do and are happy to cooperate and show, once again, the quality of our compliance programs.

Your next question comes from Paul Ginocchio, Deutsche Bank.

It's Adrienne Colby for Paul Ginocchio. Could you comment on how to high school enrollment channel is trending and if there's any expectation that could have a possible drag on the July and September enrollment trends?

Yes. That's an excellent question. And unfortunately, I think it is a little bit soft for us. We're seeing -- and actually, that was in that USA Today article I saw yesterday, was talking about kids coming straight out of high school and saying, "I'm just going to skip college, or I'm going to delay college, and I'm going to try to start a business." It profiled someone who was starting a car detailing business instead of going to college. And we're seeing that a little bit in our high school program. And as a result, we've seen that program be a little bit less productive, and so we've -- that's one of the areas that we have redeployed some of our resources. So in metropolitan areas, where it is working, we going to certainly continue it, and we're dedicated and committed to working with high schools to help them educate their students on college and careers. And so we continue to run wonderful programs like HerWorld, which helps high school young women understand programs in STEM fields. It's interesting, something like 58% of all college 4-year degrees are earned by females, but only 20% of all STEM degrees are earned by female. And so we're trying to do our part, along with others, to turn that around and introduce those programs to young ladies, and that's an area that's part of that high school program. But -- so we're going to continue to do that. But we have trimmed it back in metropolitan areas, where it hasn't been as productive, to redeploy those resources. So it is an area that we've -- historically have seen more strength. It's historically been a nice sort of -- a part of the diversification, having that more steady group of students that tends to be, historically, over the decades, less cyclical than the working adult student. But this time, with this economic situation and the perception of employment, it seems to be a little bit different. So it's probably an area of softness for us heading into the -- where they would traditionally, enroll in July and September.

And if I could just ask a follow-on to David's question. Of the additional $20 million in cost saves that you've talked about this quarter versus last quarter, is it the same sort of split that you indicated, the 80% as sort of structural and 15% to 20% is volumetric? Or is that additional $20 million more on the volume side?

It -- some of it's more on the volume side. However, we are getting some very good results from our course optimization and being smarter on how we schedule courses, so that's more structural. But yes, there is, with lower revenues, we have more books for our cost, lower bad debt expense.

And your next question is from Gary Bisbee.

It's Zach Fadem for Gary. Looking at the last 4 or 5 starts periods for DeVry University undergrad, you've kind of gone from double digit to single digit and back and forth and back and forth. Just given the choppiness of this pattern and looking back, is there any internal execution issues that have gone on? Or is this primarily a function of demand?

It's both, I would say. And I think that's a good observation, and I think it is -- that choppiness is something that we talked about, and so we would probably expect that. We do need to do a better job of execution, in particular in communicating the strong value proposition that we do have. That's the sort of maybe ironic part of this dynamic is that when you look at the value of the investment in DeVry University Education in terms of the employment results, it's very, very strong. Yet just on the margin, we're seeing students who are hesitating. And so the plan, from an execution standpoint, is to be more hard-hitting about that messaging. I think we've done a very good job with our messaging and branding and advertising, those kinds of activities. And talking about -- and building the brand reputation of DeVry University and Keller Graduate School of Management is helping improve awareness. We need to be more hard-hitting on that message of the career outcomes. And I think in this environment, we also need to do a better job of helping students finance their education and show them how we can assist that. And we have some specific tools and technologies as well that we'll be rolling out to do that. So we've identified practices, we've identified messaging, we've identified technologies that we're rolling out to do a better job of that execution, while, yes, there are also external factors at play here. So it's a bit of both.

Okay. And back to the growing part of the business, at Chamberlain, you've posted really solid growth, largely due to the impact of new campuses. I'm curious what the current margin impact is on, in particular, the startup campuses, and how do you see those startup losses trending over the next 12 to 24 months?

Sure. Let me start, and if you want to jump in here, because a few quarters ago, we gave some color on that dynamic. I don't know if we can pull it up off the top of our heads here, but I would also add, just to antecedents of your question, the growth has been driven both by the new campuses and by the growth in our online programs, the online RN-to-BSN program that I mentioned in the upfront remarks and also the Masters degree programs that we have and now the new doctoral program, the DNP, Doctor of Nursing Practice. So it's really -- the growth is being driven nicely by both of those channels.

Okay, yes, point taken there. I guess what I'm really trying to get at is just the impact specifically on startup losses over the next 12 to 24 months, whether you see them lessening to improve your margins or the startup loss is getting greater, maybe you're opening up new campuses and margins will contract?

Good question. As we've said in the past, it takes about a year -- 1.5 years to 2 years before a campus is at breakeven status. And during that period of time, it's about $1.5 million to $2 million of operating expense underwriting. Now that's in addition to our capital investments. So this year, we've opened 2 campuses. We obviously opened Cleveland at the beginning of January and expect to open Tinley Park in May. And next year, it's likely that we'll open campuses somewhere in the 2 to 3 range.

And your next question is from Jeff Volshteyn, JPMorgan. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: Daniel, you mentioned in your prepared remarks about scholarships and helping students with the cost. Can you update us on the size of scholarships in 2013? I think last time you talked about $50 million range?

Yes. That's about right, and we would expect to continue to use scholarships strategically here. And as we go along, the great thing is we're learning, we're testing, we're getting smarter and more strategic in the use of scholarships, both to support new students and, interestingly, to support students who are in school and improve their persistence to graduation rights. So I'd expect, maybe to go on to a question that's maybe behind your question or others may have is, "What do you expect for next year?" It would be probably a similar, fairly stable as a percentage of revenue.

Just a couple other quick thoughts as you think about modeling, Jeff. One is that, while our scholarship still in that low 50s range that we thought about, at least at this point, given that we have fewer students, that some of the scholarships are up a bit in terms of the grant size. The second thing I would have you think about, we did talk about our revenue per student down compared to last year about 3.6% at DeVry University. I want to give you a little color, interestingly, that our scholarships -- if you think about pricing, the scholarships have offset, essentially, the tuition increase. And what we're seeing is that 3/4 roughly of that decline is coming from a mix shift towards our lower-tuition channels like corporate and military. The other 25%, roughly, is from lower credit hours per student. So as you think about modeling, those are a couple of things that you might want to consider. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: That's great, that's very helpful. Let me ask a question on Brazil. There was an article -- there was a merger announced yesterday between 2 large players in Brazil. I know it's early innings, so to speak. Would that have an impact on your Brazilian business?

Hard to say. I would like to think not, because we know those providers and actually work closely with them. We've helped to lead a group who gets together to -- created a professional association there to improve standards and practices across Brazil, and we're part of that group along with those other fine players or providers. They tend to target a different demographic, different target segment of students, than we do. So we don't -- in many cases, we don't directly overlap with them. So that would be my initial read. But we'll have to analyze that and see as things go along. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: Do you know how -- what are the different demographics? How are you different in your students?

There's different levels of socioeconomic level in Brazil, and we're at a little different level, generally speaking, than most of the programs I'm familiar with from those 2 fine providers.

I'd also add that, geographically, we're in a different position, and there's a different competitive intensity in the Northeast, where most of our institutions are.

That's right. The Southeast -- Where they'd be more heavily weighted to the Southeast, we'd be comparatively more heavily weighted to the Northeast, and it's a little bit less competitive where we are. And we've taken a pretty strong position up there. So I think it's good. I think it shows the attractiveness of the market, and I hope they execute well on that and continue to serve the students very well. Wish them the best.

And your next question is from Jeff Meuler, Baird. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: On DVU, you obviously continue to cite lower cyclical demand as one of the primary drivers. I guess you've seen a pretty nice inflection in a couple of your other businesses. Is this just the cyclical lag from your perspective? Or is it more that your initiatives that you've put in place in DVU have been less successful thus far?

It's, Jeff, probably a bit of both. I think that we're seeing -- where we're doing better tends to be in areas where we've done a better job of demonstrating and communicating the link to employment, so you think about nursing or you think about the shorter-term programs like Carrington. The longer-term programs at the bachelor's degree level do, historically, tend to take a little bit longer to recover. And where we do see those kinds of dynamics at DeVry University, there are some programs within that -- within the university like an associates in network technology or an associates in web graphic design and then a bachelors in health care administration, where we're seeing stronger performance. And I think those are the places where we're able to demonstrate that link a little bit better to the strong employment results. So a mix of the external, but we certainly, first of all, look internally at our own execution and what we can do and work our plan to improve our results. And we think we can. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Okay, I guess what point do you consider to being a little bit more aggressive with the initiatives on a DVU? And I ask that from the perspective of -- maybe I'm misreading or misinterpreting what you're saying, but it sounds like scholarships are going to be at a similar level next year. I get the partnerships with corporate and government, but that's obviously something you've been doing. So it kind of leaves just the communications piece, and it makes it sound kind of incremental relative to what the trends are there. So maybe I'm misinterpreting that. If so, if you could help correct me, or if not, at what point would you consider being a little bit more aggressive with your initiatives?

In terms -- it seems like maybe where you're going is being more aggressive on price. And we actually think we're priced pretty appropriately, and we're going to hold the line and take -- and have a freeze, which we think will be well received by students, particularly in an environment where 75% of U.S. higher education, or actually, I should say, 90% of higher education, on average, is going up about 8.3%. So we think we're priced about appropriately. We've done pretty aggressive testing. We've been very aggressive with that. We've been aggressive, if you will, with market research on price elasticity. And we really haven't seen evidence that says, if we dropped our price dramatically, that -- you'd probably get some more but not enough more to be advantageous. On the other hand, the use of scholarships strategically does make sense. And that's where I think we have been, I think, appropriately aggressive, if you want to use that word. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just one quick final one. Can you just help bridge the gap between DeVry Brasil enrollment growth and revenue growth? Is that enrollment growth an organic number? The plus 7.2% total students?

The plus 7.2% would be benefiting from the acquisition of FAVIP, which would have joined the family in August of 2012. But we would have fully anniversary'd FBV. Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division: But didn't you say that Brazil revenue growth was up 60-some percent? Why is there that large of gap between the enrollment growth and the revenue growth?

Well, actually -- plus, I apologize. We also have the acquisition of...

FAVIP and FBV. So it's really timing. Because that revenue -- we're giving you the point in time on the enrollment, and that revenue was a year-to-date number, I think, across the year.

And your next question is from Jeff Silber, BMO Capital Market.

Daniel, I just wanted to clarify one thing. I think when you were talking about the tuition freeze at DeVry University, you said next year. Can you tell us exactly what that means?

Yes. Jeff, exactly what that means is when we typically raise tuition, July 1, the new fiscal year, the new academic calendar year. And so this July 1, unlike past years, it won't go up. It will be frozen.

That's what I thought. And are you considering similar measures at any of your other schools?

Yes. At Carrington, we will be flat as well. And a slight increase at Chamberlain. DeVry Medical and DeVry Brasil will both be up probably in the 4% to 6% range. So that's how it might trend across the different institutions -- degree-granting institutions. And I think there's an update here on the previous question.

It's a cloudy day in Chicago, so I'm not getting enough vitamin K. The 7.2% total enrollment growth at DeVry Brasil, the prior year period, we've included FBV and FAVIP. So that would be an organic or on a comparable same-store basis, if you will.

All right. Can I sneak in my follow-up? You talked, again, going back to DVU, you talked about inquiries being down. Were there specific channels that you saw more of this weakness? And are you thinking at all about changing your marketing mix accordingly?

Sure. You're always trying to find those -- the organic, the page search. And that is where it's a little bit more competitive. And so we are certainly making efforts to improve that, to work on better social, digital marketing. A lot of investment, being very aggressive there. At the same time, we're being very disciplined if we don't see the opportunity. We're not going to just chase to chase, and we'll be very, very disciplined and careful stewards of our owners' capital here. So it's a balance, and just given that lower overall demand, it makes it a tough environment, because you could just go out there and spend more, but we're not going to do that. We're going to do that only where we see it be a productive return on those investments.

And your next question is from Brandon Dobell, William Blair. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Maybe, Dan, if you could maybe disaggregate some of your comments around kind of demand and execution, kind of breaking apart, let's call it associate, bachelors and graduates. And maybe if there's an overlay between ground and online. I know these businesses are all acting differently. But I guess I'm trying to get a feel for where you think you've got more visibility into execution issues, perhaps, or if you see the online business challenged in different ways so different strategies are necessary there than the ground business. Is it really all just a demand issue for online? Or do you think it's competition or more available seats or different price points? Just trying to get, I guess, a little difference between ground and online for you with some kind of programmatic comments as well.

Sure, yes. So now I've -- you've painted a mental picture of a matrix of bachelors, associate, graduate, online, on-site, technology. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: It's 6 or 7 dimensions, I think.

But, yes, I've got a nice cube in my head, and I think we're going to try to work with you on this, break that down a little bit. The interesting dynamic or color on that is that it's not a whole lot different, technology programs, business programs, online, on-site. And actually, we think of it as an opportunity that says that we have an opportunity -- we should be doing better in some of the technology programs where we're particularly strong in the graduate employment results. And so that's an opportunity. Also online, I think, we do have some execution opportunities there. We've had some new members of the management team, and as they get in place and further up to speed, I think, that's an opportunity. And then I think there's execution opportunities in some new technologies. For example, we've recently been testing, very aggressively, some interesting new technology that actually takes a look at the conversations that we have with our students and helps us to parse that out and do a better job of coaching our people, our staff, on how they could be more productive in that endeavor. And having done a successful, a very rigorous test over a long period of time, we're now getting to roll that out more broadly and more aggressively. So I think those are just examples of how we can control our destiny, as we have at Carrington and as we have at Chamberlain. Now we need to turn that same switch at DeVry University. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Great. Should we expect the same kind of, I guess, pricing decisions, scholarshipping, price freezes, that kind of thing between ground and online in the DeVry franchise or the Keller franchise. Or are those going to be treated on a case-by-case basis?

Pretty much across the board. It's a little bit of programmatic, of course, graduate and undergraduate are priced differently, but within that, we don't do a lot of programmatic pricing. We used to have a different price for online and on-site. And over a couple-of-year period, we harmonized that. It took us 2 or 3 years to do it. And we like that message to our students. We want to serve our students the way they want to be served, and we want to teach our students the way they learn the best, with 100% on-site, 100% online, 50/50 or anything in between. That's a point of distinction, because there's very few universities that can offer that kind of best-of-both, on-site and online, across coast-to-coast. And again, another very strong message, very strong value proposition that maybe we could do a little bit better job of communicating. So it's pretty much the way it works on pricing. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: Okay, and then final one for me. Are you guys at all concerned that within the DeVry franchise, for some of the bachelors degrees, that the marketplace just looks at the terminal degree, the necessary terminal degree as being an associates degree now? And this is a lot more common in vocational fields like the culinary, for example. But do you think that the employer mindset or the necessary skills generate the need for an associates degree, where, for a long time, the marketplace has offered bachelors? And therefore, the students are kind of pushing back on that longer program and maybe the shift would be towards more associates, or do you think you still got good opportunities to drive that longer degree program?

We think we still have opportunities to drive that bachelors degree program. We don't have any evidence that there's a move counter to the long-term, decades-long trend toward more education now. Used to be a high school degree, 3/4 of all jobs required only a high school degree. Now it's 3/4 of all jobs require a college degree. Used to be high school, used be bachelors, now you need a masters in nursing. Used to be diploma, then an associates, now more and more a bachelors. So the long-term trend is toward more education as we're in more of a knowledge economy, not less. Again, I think it's a cyclical matter here in higher education, not a seminal trend. I wouldn't have any data to say there's a seminal trend toward shorter. So I think there may be some opportunities, though, in the near term here to do certificates, shorter opportunity -- shorter programs. You have people chunk it up and give students an opportunity to ladder up their learning as they go but with a view toward a ladder of learning over time. We think that's an opportunity. In fact, certificate programs at both the bachelor and the graduate level at both DeVry University and Chamberlain College of Nursing have been a bright spot for us. We're doing very well with certificate programs. Brandon Burke Dobell - William Blair & Company L.L.C., Research Division: And a final one for either Time or Patrick. In terms of the incremental cost savings that you guys are now talking about, should we expect that the show up primarily in DVU given the new enrollment weakness there? Or should it be spread across the different divisions?

Largely within our institutions in transition, so DVU and Carrington.

And your next question is from Tracy Urdan, Wells Fargo Security.

I know that we've rehearsed this subject ad nauseum, but I didn't catch the nuance of the weakness in the March start. Would you attribute it primarily to a challenge around leads or inquiries or a challenge around converting the inquiries into starts?

Trace, really both, inquiries and the conversion.

Okay. And you mentioned that paid search, did you have a feeling that, that was a sort of a particularly weak spot there?

Yes. I think there is more bidding going on for that, and we have seen some competitors spend a little bit more, which is going to lead to that. And so that has hurt the overall mix that we saw this cycle. It was a little bit lower-quality mix, if you want to look at it that way.

All right. Okay. And then, again, something you may have touched on that I missed. The contracting margins in the international K-12 and professional ed segment, what do you attribute that to? Is that just a function of the acquisition in Brazil being differently margined or...

The way I think about it, while Pat's looking at that, is we did see nice operating leverage that came from -- in that segment coming from growth in revenue at DeVry Brasil and in Becker. So we saw a nice improvement in both revenue and operating income, showing some of that operating margin.

That gives me my answer, then. So that's an advanced academics issue?

They're not doing great, but they are a smaller part of that overall mix.

I know it's a minor thing, but it was sort of going a strange direction, and I was curious about that. I also want to ask about, Dan, you touched on RN-to-BSN. I'm wondering if you could share with us how important that is to the growth that Chamberlain is seeing right now.

RN-to-BSN online? It's an important part of the growth. We have a really strong program there and...

Would you go so far as to say it's driving the growth?

No, I would say that the growth's being driven, as a mentioned earlier, Trace, both with the online programs, highlighted by the RN-to-BSN, but not exclusively. Remember there's the MSN. There's a number of different MSN or Masters level programs now and more to come, a doctoral level online program. But then the campus-based programs are a nice source of growth as well. So, yes, Chamberlain is really performing very well for our students across online and on-site.

Got it. And last question on the cleanup slide here. How should we think about growth in Brazil long term? Where do you see that market growing, and where do you see your position relative to that rate of market growth there on sort of a long -- medium or long-term basis?

I would say we're very strong in engineer -- so let's start programmatically. Very strong in engineering as well as in business and law. We're stronger at the bachelors degree level than in either the associates or the graduate. So I think those 2 ends are opportunities for further growth for us as we strengthen our programs in both of those areas. And then I would say, again back to the curriculum area, health care. We have a lot more opportunity in health care than we've currently participated in so far. Then I would also add the geographic dimension. We're building a lot of strength in the Northeast, and we want to continue to broaden -- that's our focus, but we're going to look for opportunities to broaden. And then I guess, finally, would be modality. We're mainly on-site programs, and we see the opportunity to grow online programs as that modality takes shape and matures in Brazil. So 3 or 4 veins of growth for us in Brazil, and those would come both organically and through acquisition.

And that makes it sound like you plan to outpace the overall rate of growth, given that you're in these attractive areas, is that fair?

Yes, that would certainly be -- we've done that, and we've grown faster than the market, and we would certainly want to keep doing it.

Okay. We just have time for one more question.

That question comes from the line of Corey Greendale, DeVry (sic) [First Analysis Securities Corporation].

It's David Warner for Corey. I was wondering if you could comment about the sort of long-term geographical expansion opportunity with Carrington and Chamberlain, what your plans are for new locations?

Sure. At Carrington, we see a lot of white space there across United States. In the near term, we're really focused on getting Carrington back in the black. And so we're not anticipating a lot of new campus openings in the near term. We just think it's the right and responsible thing to do to improve our economics first and then to do that. Chamberlain, on the other hand, we see 2 to 3 campuses per year for quite a long time, seeing a lot of opportunity. And that would be both in in-market fill-in as we're doing here in Chicago, now with a third location, as well as new market greenfield. So that would be the perspective there on geographic expansion. And I would like to just take a minute and thank everybody for your questions. Really appreciate that you keep us on our toes. Remind everyone that our next quarterly results call is scheduled for August 8, where we'll, obviously, announce the fourth quarter and full year results as well as enrollment per the schedule. Thanks, everybody, for your continued support of DeVry.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.